As the war between Russia and Ukraine continues, the cost and human cost cannot be underestimated; this tragedy must be resolved as quickly and peacefully as possible. Given these unimaginable costs, discussing financial measures and other such items may seem trivial. Seemingly trivial, but the financial headlines and actions taken by Russia and the nations that support the people of Ukraine have generated significant conversations and debates. At the heart of the matter is the following question, among others; What role do cryptocurrencies have to play in times like these?
Before looking at some of the more direct implications of encryption, both now and going forward, there is something that needs to be addressed – the emergence of more centralized encryption options. As new and varied applications such as stablecoins, non-fungible tokens (NFTs), decentralized finance (DeFi) opportunities and central bank digital currencies (CBDCs) gained prominence, the shift away from true decentralization was unmistakable. This horrific conflict proved that – despite the convenience and acceptance that some of these newer options have generated – there is fundamental power in the idea of decentralized currencies.
Let’s take a look at some of the truths that Bitcoin has and will continue to prove in the future.
Decentralization is needed. Leaving aside debates that can take place in person or through online forums, the power of decentralization is unquestionable. Time and time again, centralization of power, control over information, and lack of choice have led to fewer choices for consumers, restrictions on access to those options, and a less dynamic market. The turmoil and chaos that accompanied the war in Ukraine also led to turmoil in financial markets, with innocent civilians and the civilian government suffering the most.
With Ukraine’s central government driving acceptance of bitcoin and ether denominated donations and raising over $50 million to date, this demonstrates the sheer power of decentralized financial options. For those who most need access to traditional financial systems, who have been locked out of these services, decentralized cryptocurrencies have proven to be an invaluable lifeline.
There are certainly questions to be asked about how cryptocurrencies can be used to avoid sanctions, but this is not as clear-cut as it may initially seem.
Cryptocurrency is becoming decriminalized. Even as the amount of institutional interest and investment continues to accelerate since 2020, there has been a recurring accusation that cryptocurrencies – especially decentralized options – are primarily used for criminal activities. In light of recent events, this indictment has been expanded to include nations that use cryptocurrencies to avoid financial sanctions. An accusation that appears to be accurate, but which is not entirely accurate.
Firstly, the idea that cryptocurrency is untraceable is not true, and especially not true for cryptocurrencies like bitcoin and ether – the public ledgers that underpin these instruments can be reviewed by anyone, including law enforcement agencies. law. Second, however large the crypto space has become, the available liquidity would simply not be sufficient for widespread sanctions evasion at the nation-state level. Last but most importantly are major cryptocurrency exchanges – as well as requiring Know-Your-Customer (KYC) and Anti-Money Laundering (AML) compliance.
With most major cryptocurrency exchanges cooperating with lawmakers and regulators, this path to the illegal use of cryptocurrencies has been restricted.
Conventional adoption will be accelerated. The incessant conversation and debate about the impact and implications of cryptocurrencies will also have a second-tier effect; accelerating widespread adoption. As the world’s media has brought the original use case of cryptocurrencies – decentralized money not controlled or governed by a central government – to the proverbial first burner of many individuals, the enthusiasm for this use case is undeniable.
As with virtually all other technologies or major changes in the way data is handled and managed, a prominent impetus can help accelerate adoption by the non-specialist audience. Directly observing the impact of cryptocurrencies on individuals and enabling freedom of exchange despite what else is happening in the world may just be the push of regulators and policymakers.
Cryptocurrencies and blockchain technology have repeatedly proven the value they deliver to the market, and the wider global media is communicating these attributes almost continuously. Cryptocurrencies have come a long way since the original bitcoin blockchain whitepaper was published online, and the original genesis block kick-started the entire broader cryptocurrency ecosystem. During this accelerated and continued growth and adoption among individuals and institutions – however creative and dynamic they have been – they have continued to change and pull cryptography more towards centralization trends. In the face of all this excitement, it would be easy to forget that the true and original power of cryptocurrency was the borderless and decentralized fundamentals attached to this technology. Markets, regulators and market participants would do well to remember this lesson going forward.